The U.S. Department of State Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world.  They analyze a variety of economies that are or could be markets for U.S. businesses.

Topics include Openness to Investment, Legal and Regulatory systems, Dispute Resolution, Intellectual Property Rights, Transparency, Performance Requirements, State-Owned Enterprises, Responsible Business Conduct, and Corruption.

These statements highlight persistent barriers to further U.S. investment.  Addressing these barriers would expand high-quality, private sector-led investment in infrastructure, further women’s economic empowerment, and facilitate a healthy business environment for the digital economy.  To access the ICS, visit the U.S. Department of Investment Climate Statement for Panama.   

Executive Summary

As the home of the Panama Canal, the world’s second largest free trade zone, and sophisticated logistics and finance operations, Panama attracts high levels of foreign direct investment from around the world and has great potential as a foreign direct investment (FDI) magnet and regional hub for a number of sectors.  Panama remains in the first position in attracting FDI in Central America, closing 2019 with $4.835 billion, according to Panama’s National Institute of Statistics and Census (INEC).  Panama, over the last decade, has been one of the Western Hemisphere’s fastest growing economies, benefiting from investment-grade credit, a strategic location, and a stable, democratically elected government.

Prior to the outbreak of the COVID-19 crisis, Panama’s Ministry of Economy and Finance predicted the economy would grow by four percent in 2020, up from three percent in 2019.  However, the crisis will clearly have a significant negative impact on GDP with estimates including negative growth.  The global crisis has hit some of Panama’s key industries, including maritime and the national airline Copa, and the services ancillary to trade.  Panama’s macroeconomic health has been stable, with the inflation rate less than one percent as of the end of 2019.  As of May 2020, six weeks into the COVID-19 crisis, the sovereign debt rating remains investment grade, with ratings of Baa1 (Moody’s), BBB (Fitch), and BBB+ (Standard & Poor’s).  Decreases in government revenue, unexpected expenditures, and additional borrowing resulting from the COVID-19 crisis changed Moody’s outlook from stable to negative.

Apart from those brought by the COVID-19 crisis Panama has other challenges, including corruption, judicial capacity, a poorly educated workforce, and labor issues, which often precludes further investment from foreign companies or complicates existing investments.  With a population of just over four million, Panama’s small market size for many companies is not worth the risk of investment.  The World Bank classified Panama in July 2018 for the first time as a “high-income” jurisdiction in its annual country classifications after its Gross National Income per capita squeaked past the threshold for that classification.

Panama is one of the most unequal countries in the world, with the 14th highest Gini Coefficient and a national poverty rate of 14 percent.  Those numbers will increase due to the COVID-19 crisis.  The Cortizo administration has shown its willingness to address investment challenges by prioritizing key economic reforms required to improve the investment climate and has addressed the precarious situation of the country’s most vulnerable through payment deferral legislation and a robust food aid program.